With Air India on board, Tatas plans to test airline synergies

New Delhi: After successfully taking over management control from Air India, the Tata Group conglomerate has grown into one of the largest aviation players in the world.

It now has more than 200 aircraft and more than 80 domestic and international destinations.

Notably, the group has two full-service airlines – Vistara and Air India – along with two low-cost carriers – Air India Express and AirAsia India – and a ground and cargo handling company, AISATS.

According to sources, it plans to test synergies between all its airlines in order to compete in different market segments.

On Thursday, a new board, which also included Tata’s nominees, took charge of Air India.

The new board therefore completed Air India’s strategic divestment.

In the process, the Center received compensation of Rs 2,700 crore from the ‘Strategic Partner’ – Talace – which is a wholly owned subsidiary of Tata Sons.

In addition to the prepayment, Talace will retain a debt of Rs 15,300 crore.

In particular, the transaction involved three entities: Air India, Air India Express and AI SATS.

After the transaction, there are plans to run all of these brands as independent entities under one vertical for a while.

Nevertheless, the group plans to create important synergies between the airlines in the areas of fleet management, route deployment, flight times and airport slot planning.

In terms of USPs, Vistara is expected to maintain the premium services label, while Air India will mainly focus on major international and metro routes.

Domestic feeder traffic is expected to be powered by AirAsia India, which may have few aircraft from Air India’s fleet.

In addition, mergers will depend on profitability, performance and market conditions, independent of each airline’s unique culture and brand suitability.

All in all, Tata Sons’ subsidiary Talace, in addition to other assets such as human resources, will receive more 140 aircraft and 8 logos.

As for the fleet, Tatas will get Air India’s 117 wide-body and narrow-body aircraft and Air India Express’s 24.

A significant number of these aircraft are owned by Air India.

It will also deploy these aircraft on more than 4,000 domestic and 1,800 international routes.

In addition, it will gain access to Air India’s frequent flyer program, which has more than three million members.

In addition, eight brand logos would be transferable to the Tatas, who would have to sell them for a period of five years.

As far as finances are concerned, Tatas has to take care of the loss of Rs 20 crore per day that the company suffers.

The agreement also includes a three-year business continuity clause. Tatas would also have to maintain a 51 percent stake in the airline for at least one year.

Nevertheless, Tatas will have full operational control over the divested entities.

On the other hand, the transaction does not involve non-core assets including land and buildings, worth Rs 14,718 crore, which will be transferred to GoI’s Air India Asset Holding Limited (AIAHL).

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